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Title: Question 1
QA_Ori:
The purpose of the cash flow statement is to report all major cash receipts (inflows) and cash
payments (outflows) during a period. It helps users to answer questions such as:
Title: Question 2
QA_Ori: On a statement of cash flows, investing activities include cash outflows from
purchases of long-term investments such as stocks and bonds, from purchases of plant assets
Title: Question 3
QA_Ori: On a statement of cash flows, financing activities include cash inflows such as those
Title: Question 4
QA_Ori: The direct method of reporting cash flows from operating activities itemizes the major
Title: Question 5
QA_Ori: On a statement of cash flows prepared according to the direct method, operating
activities generally include cash receipts from the sale of goods and services, cash dividends
Title: Question 6
QA_Ori: The indirect method of reporting cash flows from operating activities begins with net
Title: Question 7
QA_Ori: Payments of cash dividends should be reported on the statement of cash flows as
Title: Question 8
QA_Ori: The amount of the land purchase that was paid for in cash ($400,000) should be
Title: Question 9
QA_Ori: Since this cash inflow results from borrowing money, it is reported on the statement of
cash flows as a financing activity.
Title: Question 10
QA_Ori: Yes; even though a company reports positive net income for the year, it may still show
a net cash outflow from operating activities. When net income is reconciled to the net cash
Title: Question 11
QA_Ori: Depreciation is not a source or a use of cash, even though it must be added to net
Title: Question 12
QA_Ori: (a) Indirect method. (b) The increase in accounts (trade) receivable represents an
QA_Edit:
Title: Question 13
QA_Ori:
Arctic Cat’s statement of cash flows shows several major financing activities for the year ended
March 31, 2011 ($ thousands):
Title: Question 14
QA_Ori: KTM’s net cash (all is Euro thousands) from operating activities is €70,348; its net
Title: Question 15
QA_Ori:
Piaggio’s investing activities yielding cash outflows and inflows for the year ended December
Title: Quick Study 16 -1
QA_Ori:
1. The statement of cash flows reports the cash (and cash equivalent) activities of a
2. Examples of transactions classified as investing activities
Plant asset purchases
3. Examples of transactions classified as financing activities
Bond retirement and issuance
4. Examples of significant noncash financing and investing activities
Exchange of stock or debt securities for noncash assets
Title: Quick Study 16-2
QA_Ori:
1. Investing 6. Financing
2. Operating 7. Operating
* For the “indirect” method, the loss is reported as an adjustment (add-back) to
net income in the operating section.
Title: Quick Study 16-3
QA_Ori:
Cash flows from operating activities
Net income.................................................................................... $18,200
Title: Quick Study 16-4
QA_Ori:
Computation of cash inflow from sale of furniture
Cost of furniture sold (given)........................................................... $52,500
Title: Quick Study 16-5
QA_Ori:
Part 1
Computation of cash received from the sale of common stock
Part 2
Computation of cash paid for dividends
QA_Ori:
Beginning retained earnings...........................................................................$287,500
Title: Quick Study 16-6
QA_Ori:
Cash flows from operating activities
Net income.................................................................................... $30,000
Adjustments to reconcile net income to operating cash flow
Depreciation...............................................................................$37,600
Title: Quick Study 16-7
QA_Ori:
Computation of cash inflow from sale of furniture
Cost of furniture sold (given)...................................................... $55,000
Accumulated depreciation at beginning of year (given)................. $ 9,000
Title: Quick Study 16-8
QA_Ori:
1. Computation of cash paid for dividends
Beginning retained earnings................................................ $ 8,400
2. Computation of cash payments for notes
Beginning notes payable...................................................... $69,000
Title: Quick Study 16-9B
QA_Ori:
1. Cash received from customers = Sales + Accounts receivable decrease
Title: Quick Study 16-10B
QA_Ori:
1. Cash paid for merchandise
= Cost of goods sold - Inventory decrease + Accounts payable decrease
2. Cash paid for operating expenses
= Operating expenses (excluding depreciation)
+ Prepaid expenses increase - Wages payable increase
QA_Edit:
Title: Quick Study 16-11B
QA_Ori:
Cash flows from operating activities
Receipts from sales to customersa.......................................... $ 498,000
a From QS 16-9B
b From QS 16-10B
c From QS 16-10B
d $17,300 (income tax expense) + $1,200 (decrease in income taxes payable)
Title: Quick Study 16-12
QA_Ori:
1. Moore is probably in the strongest position of the three competing companies on the
basis of the statement of cash flows. Moore’s cash flows from operations are able to
2. Sykes’s cash flow on total assets ratio is slightly stronger than that for Moore.
QA_Edit:
Title: Quick Study 16-13A
QA_Ori: The balance sheet equation can be arranged so that the algebraic total of all
noncash items is equal to cash (see Exhibit 16.8). It follows that when all changes in
Title: Quick Study 16-14
QA_Ori:
Cash Flows from Operations (Indirect) Case X Case Y Case Z
Net Income............................................................. $ 4,000 $100,000 $72,000
Changes in assets and liabilities
QA_Edit:
Title: Quick Study 16-15
QA_Ori:
Investing Activities
QA_Edit:
Title: Quick Study 16-16
QA_Ori:
Financing Activities
QA_Edit:
Title: Quick Study 16-17
QA_Ori:
Part 1
MONTGOMERY, INC.
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2014
Cash flows from operating activities
Net income.....................................................................................$ 10,500
Adjustments to reconcile net income to net cash
Cash flows from investing activities
Cash paid for equipment (Note 1).................................................. (8,400)
Note 1
Equipment
Part 2
The company’s operating cash flows are negative, $(1,750). This is not a good
omen. However, much of this is attributed to a huge increase in inventory. Thus, an
QA_Edit:
